Zimbabwe dollar loses 12 zeroes

Zimbabwe’s central bank on Monday cut 12 zeroes off the country’s currency, the third such revaluation in 30 months.

Presenting his 2009 monetary policy statement, Gideon Gono, the reserve bank governor, also announced a huge devaluation of the official exchange rate from Z$12.3 billion to the US dollar to Z$20,000bn.

In the newly revalued currency – with the 12 zeroes lopped off – the exchange rate will be Z$20 to the US dollar. But although the official devaluation is massive it still leaves the exchange rate hugely overvalued. On Monday, one supermarket was selling bread for 80 US cents a loaf or Z$250,000bn in local currency – an implicit exchange rate of Z$312,500bn.

Mr Gono’s 200-page statement was laced with claims that his monetary policies, which have delivered inflation estimated by some economists at trillions of per cent, were now a model for central banks around the world to fight recession. Seemingly unfazed by demands from the opposition Movement for Democratic Change that he be fired when it joins Zimbabwe’s “inclusive” government next week, the Governor’s demeanour suggests he expects to complete his second five-year term, which started only two months ago.

He shed some light on the proposed mechanics of what he calls Zimbabwe’s new “multi-currency system,” announced in the budget last Thursday, saying that all businesses must display prices in Zimbabwe dollars as well as in a foreign currency. The local currency would continue to be legal tender circulating alongside foreign currencies. “We have not dollarised the economy,” he said, but “multi-currencied” it.

Employers will be allowed to pay their workers in foreign currency, while retailers were being invited to sell foreign-currency denominated vouchers to employers who could then use them to pay their workforce.

His proposal does not solve the key problem facing large employers, like the government and the banks that will have very limited access to foreign exchange. One retailer responded by saying that the uncompetitive exchange rate, to be determined daily in the inter-bank market meant that his business would not be able to sell goods in local currency. “This is not a multi-currency solution,” he said, “but a foreign currency one, which may work for those with access to dollars or rands, but not for the rest of the community.”

Mr Gono also announced that all public utilities will be able to charge for their services in foreign exchange, making an exception for high-density (low-income) communities which will still be able to pay their telephone and electricity bills with Zimbabwe dollars. All businesses and even schools, universities and street hawkers must apply for foreign currency licences at an annual cost ranging from US$25 a year for hawkers to US$12,000 for large businesses.

The Governor also announced a raft of measures, welcomed by business leaders, designed to liberalise the exchange control system, increase the proportion of export revenues retained by exporters to 92.5 per cent from 85 per cent and reduce to 10 per cent from 50 per cent the statutory reserve ratios of banks.

It is unclear how the MDC will respond to major economic policy announcements being made just days before it joins the government and takes over responsibility for some of the economic ministries. When new ministers take over they will find that their hands have been tied since many elements of the new fiscal and monetary packages announced since Thursday will be difficult to reverse.